Uff: Udecott operated by its own tender rules

43. Early contracts were let on an intended “fast track” basis for earthworks, piling, the pitch and the Stadium. By early 2006, however, a number of major problems had begun to emerge. Difficulties were encountered in obtaining bids for the remaining work packages. Revised cost estimated indicated that the project was now running some 50 percent over budget. Udecott was in dispute with TAL and the sub-consultants. Most important, however, was that time was rapidly running out to achieve the objective of completion by early 2007. Between August and September 2006 Udecott, together with TAL, took a bold decision to award a contract for the whole of the remaining works to HKL at a “guaranteed not to exceed” price of $379million with a handover date of February 2007. A similar proposal had been submitted in May 2006 but was not then brought to a conclusion and the HKL proposal was accepted only on October 2 2006 on the terms of HKL’s bid letter dated August 22 2006.

44. A formal contract was subsequently placed, but it is clear in retrospect that the decision to award the contract to HKL was deeply flawed in that (i) the ICC had already announced, as a result of the delays, that the World Cup would not take place at the Stadium; (ii) significant parts of the design were incomplete making it virtually impossible that the work could be completed either on time or within the guaranteed price; (iii) Udecott accepted terms proposed by HKL which were (at least as interpreted by Udecott) seriously disadvantageous to the Government and unreasonably favourable to HKL.

45. As the work proceeded, the original completion date disappeared without trace. Progress on the project deteriorated and on occasions virtually ceased. Udecott, for reasons that remain unexplained, commended and persisted in making advanced payments to HKL which greatly exceeded the value of work performed or materials procured. Partial repayments were effected by deduction from payment certificates in favour of HKL. However, detailed investigation by experts appointed to assist the Commission, Acutus, established serious inconsistencies in Udecott’s records both of sums paid and repaid.
46. As a result partly of disputes with TAL and their designers, the steel canopy structure, which has now been substantially erected, is grossly over designed and has in turn given rise to constructional problems. A much simpler and cost effective design could and should have been adopted. TAL took issue with Udecott’s treatment of HKL, particularly the sums being advanced to them. TAL also advised that the HKL contract should be terminated. Udecott rejected TAL’s advice and they became sidelined and subsequently replaced by Genivar. The project is now at a virtual standstill with neither Genivar nor Udecott apparently able to find an effective solution. Udecott’s own independent expert, Arun Buch has described the project as a “fiasco”. It represents a major failure of management on the part of Udecott.

Time and Cost Overruns on
Udecott projects
47. Information has been reviewed on eight projects managed by Udecott including those above. On the credit side, the Prime Minister’s residence and the International Waterfront project have substantially been completed to time and budget with no information on defects. The Performing Arts Academies have each been subject to substantial delays of some months. Additional costs are anticipated but no information is available as to claims, nor as to any defects. The Northern Academy in particular has now been completed to a high standard. All these projects were carried on the basis of design-build.

48. The Chancery Lane complex in San Fernando was also a design-build contract undertaken by a local “international” contractor. The project has been successfully completed but with increased cost of some 40 percent. A major part of the increase, however, is attributed to owner variations and the cost increase against the original work-scope is around 17 percent. This represents a favourable cost outcome in comparison to other successful projects.

49. Udecott’s design-build projects should be compared with design-tender projects, the largest of which has been the Government Campus Project. The first of the packages within this complex was the Customs & Excise building which, after an aborted initial tender process, was awarded to NHIC with TAL acting as Project Managers for the whole project. The C&E building was subject to very substantial delays, well in excess of two years, effectively doubling the contract period. Cost increases, however, were of a lower order, being approximately 13 percent. Overall the whole project has been subject to delays in excess of two years but with cost increases of approximately 11 percent.

50. A controversial aspect of the delay was the fact that the C&E building contractor effectively controlled access to other parts of the project. This was a management error which resulted in NHIC having to be “bought off” as part of a settlement deal. Overall, none of the Contractors, including NHIC, has been held to account for any part of the huge delay which has occurred. This appears to be typical of other projects in Trinidad and Tobago. Also of note is that TAL has been kept in post while having been removed from the Brian Lara Project.

51. Finally, two projects were reviewed which represent a serious downside of Udecott’s performance both in terms of time, cost and quality of work. The Brian Lara Project has suffered massive delays. Instead of achieving completion in early 2007 as promised, the project is now drifting out of control with no predictable completion date. Costs have likewise escalated out of control and are now predicted to exceed $700 million as against the initial budget of $272 million. The final cost of completion, in whatever form is chosen, cannot be predicted at the present time.

52. The other project which has run into serious problems of time and cost is the modest project for a new financial complex in Tobago. There was nothing controversial about the project, which required no more than elementary management skills. The project was planned as a refurbishment and reconstruction of an existing building. Only after piling was already well under way was it discovered that the original building would have to be demolished and reconstructed. No explanation was given for the failure to discover the true state of the existing building.
However, having decided upon its demolition, the opportunity was taken to redesign and enlarge the building, which has necessarily resulted in a substantial cost increase to over three-fold. However, instead of terminating the earlier contract and re-tendering the work, the additional cost has been negotiated with the contractor in place.
It is clear that the original contract should have been terminated and the extra cost determined by competitive bidding. Thus, while substantial delay and increased cost were inevitable, a large part of both the delay and additional cost is directly attributable to poor management of the project.

Cleaver Heights
53. These issues were added to the Terms of Reference and required an examination, first of the contract process, including the tendering, the award and subsequent valuation of the works; and secondly, issues of delay, cost overrun and defects, including planning and regulatory matters. With regard to the procurement and award of the contract, this occurred shortly before the transition from the National Housing Authority to the new statutory Housing Development Corporation. There was uncertainty as to the applicable procurement procedure, particularly as to whether it was intended that the developer should also finance the construction work. The contract eventually placed in May 2005 did not require NHIC to provide finance. No issue was raised at the time and it was only in the course of the Inquiry that it was first suggested that this was contrary to easier Government policy. However, the Commissioners are satisfied that there was no intention that the developer should provide finance and no contract had ever been placed on this basis by the National Housing Corporation.

54. A more serious anomaly, which appears to have led to the decision to extend the Commission’s Terms of Reference, was that the contract sum was overstated by some $10 million. The source of that error has been traced to the National Housing Authority, and the failure to detect it remains a matter of great surprise. There is, however, no doubt that the error was detected during the course of drawing up valuations for the work in progress. There was then a deliberate attempt by employees of NHIC to manipulate the figures included in such valuations, which might have resulted in the incorrect figure being paid out. Even when the error became known to HDC there was some bureaucratic obstacle which prevented the figures being corrected. The errors were not, as they should have been, corrected by formal notice to the Board. However, no additional monies have been paid out as a result either of the original error or the subsequent manipulation.

55. In the course of the investigation into the Cleaver Heights project, other anomalies came to light. NHA did not, as their rules required, draw up a formal contract but relied instead on an exchange of correspondence. This was a comparatively minor breach, particularly against the background that many hundreds of other housing contracts are said to have been carried out without a formal contract: this was indeed a rule more honoured in the breach. Much more serious, however, was the complete failure of the contract, or the antecedent tender process, to deal with the question of land tenure. Not only is this fundamental to the transfer of title to individual dwellings, but the lack of title meant that HDC, by 2009, had paid out well over $100 million for the housing and infrastructure works without possessing any security. This was a gross oversight by any standards and calls for urgent action to rectify the position on this and any other projects where the same applies.

56. With regard to planning and other statutory approvals, the process had been started in due time by the developer, but became stalled and was never followed through to a conclusion. There was an assumption that all would be regularised retrospectively. There was also a substantial change to the lay-out of the site which should have been, but was not, approved in advance. Major delays resulted from the need to deal with utilities particularly WASA and TTEC, both of which services were to be provided at the cost of HDC. This included extensive provision for sewerage of the site and the need to install electrical services in underground ducts.

57. With regard to defects, while there were numerous individual complaints about the dwellings, there was no indication that these would not be attended to as part of the contractor’s maintenance obligations; and it is to be borne in mind that the dwellings were intended to be low cost. More serious was the complaint that the site itself, where excavated, had not been provided with appropriate protection by planting or other means. This was clearly excluded from NHIC’s contract and the fault in not dealing with it lies with HDC.

58. Overall, there was a delay in excess of two years, although a number of the dwellings were already occupied. There is no indication that HDC will seek to hold the contractor to account and it appears to be accepted that some extension of time would be merited together with payment of additional costs. Part of the delay resulted from variations which, with other factors, has led to an increase in the contract price of some 17 percent. Overall this contract exhibited many of the problems and failings already documented in relation to other housing projects and was typified by a general expectation that, despite clear breaches of established procedure, there would be no holding to account.
General Issues
59. The Inquiry has examined some general issues pertaining to the public construction industry arising out of the particular matters investigated. First the Commission received a number of submissions dealing with transparency issues. It is accepted that corruption is a problem of serious proportions in Trinidad and Tobago and that the principle of transparency is an important means of combating corruption, to which the construction industry in particular is prone. The Government White Paper of 2005 proposes important counter-measures: the decision of the Government not to implement the White Paper carries with it an implicit obligation to put equally effective means in place to prevent corruption.

Contracts and disputes
60. The first requirement for any construction project is a clear and enforceable contract which covers all aspects of the project. Fundamental to this is the choice of standard form. While the numbers of such forms in circulation is, fortunately, limited, there is a need for greater standardisation. There is no reason why one or more bespoke forms of contract should not be produced for Trinidad and Tobago, based on published standard forms, and incorporating such amendments and special conditions as are considered beneficial. Such issues should be debated across the whole industry. In the absence of other forum, the Cabinet Construction Sector Oversight Committee should pursue this task.

61. Contracts, coupled with the general law, also regulate the resolution of disputes. In this regard, the construction industry has need of procedures capable of quickly and economically disposing of actual or potential disputes. While adjudication has made considerable inroads in a number of countries, its introduction in Trinidad would require first a quick and reliable means of enforcement through the Court system. We do not believe that such a system yet exists. More formal disputes generally go to arbitration. In this case there is a need for a modern arbitration law which respects party autonomy and provides for finality of awards with only very limited access to challenge. The modernisation of arbitration law and dispute resolution generally may be seen as part of the development of Port-of-Spain as a commercial and financial centre for the Caribbean, which would bring many benefits to Trinidad and Tobago.

Holding to account
62. We have observed, in the context of contractual issues as well as regulatory matters that there exists a culture of non-enforcement which appears to operate on a mutual basis. Contractors seem reluctant to issue proceedings for payments overdue or to enforce claims and employers in turn refrain from enforcing time obligations which are routinely not complied with. In regard to delay issues, the point was demonstrated by the fact that no witness or representative appearing at the inquiry was able to quote any case in which a contractor had actually been required to pay or had been debited with liquidated damages. In the wider field there was a tacit acceptance that regulatory approvals, particularly as to planning, were rarely given in a final form before the work was performed, this coupled with an expectation that such approval would be forthcoming retrospectively.

63. At the same time we had the impression that one contractor who made a habit of enforcing contractual rights, if necessary by formal proceedings, was regarded as being “confrontational”. Such an attitude does not sit well with the careful drawing up of commercial agreements; nor with competitive tending, which is carried out on the basis that contracts will be enforced. It is also inconsistent with the clear duty of directors of companies and public bodies to enforce the contracts they negotiate and enter into. If there is a desire to promote the timely and proper performance of public sector contracts, this will only be achieved by holding parties to account for any breaches of contracts freely entered into; as well as enforcement of legal duties in regard to regulatory matters. Enforcement must also be assured through efficient and timely processes of courts and other tribunals.

Project management
64. Given the number of “project management” assignments undertaken by Udecott, NIPDEC and other State agencies, as well as a number of private companies, it is relevant to examine what service is intended and what is delivered. It seems there is no clear definition of what is meant by project management, or of what it is intended to include. More fundamental, it does not appear that the actual role carried out by Udecott or NIPDEC can properly be described as “project management” at all. Their function appears to concentrate on setting up projects including, where appropriate, the arrangement of finance. They oversee the placing of contracts, often including the provision of project management services by others. Where Udecott or NIPDEC have undertaken a significant management role, there have on occasions, been serious problems (the same may apply to other State agencies). Conversely, where management has been left to professional project managers the result has usually been much more satisfactory.
65. There is a need to re-define the role that State agencies perform. There is no reason why they should not be paid a commercially agreed fee for the services they do perform. What is unacceptable is that they should take on a contractual role for which they have no aptitude or track record. Our conclusion is that State agencies should not purport to take on project management tasks and should re-define the services they do intend to provide.

Regulatory matters
66. With regard to regulatory matters and utilities, it has already been noted that non-compliance with procedure requirements is almost universal, consistent with the laissez-faire attitude already referred to. To achieve better levels of compliance will require additional resources to be put into the regulatory authorities. Subject to this, however, there are models which can be adopted from other jurisdictions to promote much higher levels of compliance. With regard to utilities, they seem to operate as a law unto themselves, frequently being the cause of delays including housing estates built at great expense which remain uninhabitable because of the inability to provide basic services. This aspect should figure high in any list of priorities to improve the delivery of construction services.
Value for money
67. This requires that corruption at all levels should be avoided; and that construction projects should be explained and executed in an appropriate and efficient manner so that only a proper price is paid for the works. With regard to the avoidance of corruption we have examined a number of projects undertaken by different Government agencies, although this has concentrated on the activities of Udecott. In a number of instances issues have arisen which, while no actual corruption has been established, may indicate the existence of corruption or potential corruption. Not least of these is a suspicion (in the absence of firm evidence) that on several and possibly many occasions influence has been brought to bear on decisions as to the placing of contracts. This may be indicative of a cultural factor which will be difficult to change. However, it should be stated that the procedures and practices leading to the award of contracts by public bodies should be transparent and fair beyond question, otherwise the taxpayer does not get value for money.

68. With regard to the efficiency of performance of construction projects, a number of projects have been identified which, in terms of output cost have achieved value for money, most of these being placed on a version of the design-build method. However, other projects placed on a design-tender basis have similarly achieved good value for money. At the same time, a number of projects have been examined which have obviously failed in management terms. While such project will fall far short of achieving value for money, the proper management of a failure, once identified, remains important. In a number of projects it has become clear that, in the interests of value for money, the contract should be terminated, yet no such action has been taken.

69. The key to achieving value for money is good management, both by contractors and on behalf of the employer. Value for money also involves building up and enhancing the skills of the local industry so as to be better placed to apply their skills. Where foreign contractors are brought in, there is a need to ensure that value is also added to the skills of local practitioners.

70. The need for holding parties to account where projects run into delay has been stated already. There remains an assumption that in public sector contracting the Government will pay or will extract no penalty for delay or other breaches by contractors, designers and other professionals. This attitude needs to be changed fundamentally. Forms of contract which have been in use for many years lay down detailed provisions as to responsibility for delay. Enforcement is in the hands of managers on behalf of the employer. Just as contractors should be paid sums properly due pursuant to the Contract, so they should account for the cost of delay in respect of which they are culpable. All parties need to be held to account in the interests of value for money for the taxpayer.

High Standards of Workmanship
71. While some of the recent high profile projects which have achieved high standards have been carried out by foreign contractors, we have not found any pattern of higher standards being achieved by foreign contractors as compared to local contractors or workers. There is no doubt that the local workforce can produce high standards given appropriate supervision and management. In some cases, notably low cost public housing, the need is not for the highest standards but for reasonable and cost effective standards. In this area there are concerns as to the standards of workmanship and finish. However, in general we believe that appropriate standards are achievable and are usually achieved both by local contractors and foreign contractors.

Free and Fair Competition
72. While this is a laudable objective, it means, in the eyes of some at least, the provision of a quota or subsidy in favour of local contractors and consultants as against foreign competition. This was proposed in the White Paper but is no longer accepted by Government. The question whether and when foreign contractors should be brought in and on what term is a matter which should be judged, not simply in terms of immediate cost, but in a wider context of maintaining and enhancing the local industry in the long-term interest. While we would not support any general subsidy or quota, there may well be economic justification for protecting new and relatively immature industries within Trinidad and Tobago.

Integrity and Transparency
73. We commend the advice and recommendations of the Transparency Institute and of Transparency International which were generously provided to the Inquiry. Integrity and public service should be an absolute requirement and this applies to directors and senior officials of Udecott and other Government agencies. Udecott and its directors and officials appear to have created a level of public suspicion by various actions, the majority of which may be blameless. Nevertheless, they indicate that Udecott and other Government agencies should in the future ensure that their actions are such as to generate a much higher level of public confidence in their integrity.